MBR Financial, Inc.
2000 West Loop South
Ste. 1510
Houston, TX 77027

Seven Questions and Answers About ABLE Accounts

ABLE accounts are tax-advantaged savings accounts that were created as a result of the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act. Now that many states have launched ABLE programs, you may have questions about how these accounts work and how they may help you or a family member save for disability-related expenses.

Why open an ABLE account?

Retaining eligibility for Medicaid, Supplemental Security Income (SSI), and other much-needed public benefits depends on meeting a means or resource test. Individuals may have only $2,000 in countable assets, such as savings and retirement funds. This makes it very difficult to establish financial independence and save for most disability-related expenses, including those not covered by public benefit programs.

ABLE accounts help address this problem. Because funds in an ABLE account will generally not count toward this asset limit, individuals with disabilities may put money aside for their future needs without jeopardizing their eligibility for public benefits. Regardless of the balance, money in an ABLE account does not affect an individual's eligibility for Medicaid, but any account balance over $100,000 may temporarily affect SSI eligibility. When an ABLE account exceeds $100,000, SSI payments will be suspended until the account balance falls back to the level required.

Who is eligible to open an ABLE account?

If you have a significant disability that began before age 26, you may be eligible to open an ABLE account. If you meet that age criteria and are already receiving SSI or Social Security Disability Insurance (SSDI), you automatically qualify. You may also qualify if you're not receiving those benefits but you meet Social Security's definition of disability and are able to obtain certification from a physician.

If you have a family member who qualifies, you may be able to open and oversee an ABLE account on that person's behalf if you are legally authorized to do so (for example, you're the parent or legal guardian of a minor or someone who is legally unable to manage his or her account, or you have power of attorney). The individual with the disability remains both the account owner and the beneficiary. No matter who opens the account, each eligible beneficiary can have only one ABLE account.

Can you open an account in any state?

You can open an ABLE account in your own state if your state has an ABLE program or in any state that allows nonresidents to join (most do).* Contributions can then be made by the account owner or by family members, friends, employers, or others who want to provide financial support.

What investment options can you choose?

Plans generally offer several investment options that target different investment strategies and levels of risk. Some programs also offer an interest-bearing option such as a checking or savings account. Account contributions will be invested in whatever option(s) you choose. Federal rules allow you to reallocate previously invested money twice per calendar year, but you can change your investment options for new contributions at any time.**

How much can you contribute?

Annual and lifetime contribution limits apply. Each year, contributions from all donors combined may not exceed the annual federal gift tax exclusion for that year. In 2017, this limit is $14,000. Each state sets its own lifetime limit, which is also the state's maximum limit for Section 529 college savings plans. In many states this limit is at least $350,000.

What tax benefits do ABLE accounts offer?

Any account earnings accumulate tax deferred at the federal level (and in some cases at the state level). When money is withdrawn, the earnings on these distributions will be tax-free if they are used to pay qualified expenses. While no federal income tax deduction is available, some states may offer tax incentives to residents. Check with your financial or tax professional for more information on your state tax benefits, and information on your situation.

What can ABLE funds be used for?

Money in an ABLE account must be used for qualified disability expenses. In general, a qualified disability expense is one related to living with a disability, including transportation, health care, personal assistance, assistive technology, employment training, and legal fees. It's up to you to track how ABLE funds are spent — you won't be required to submit documentation to the program. However, keep in mind that the earnings portion of a withdrawal not used for a qualified expense may be subject to ordinary income tax and a 10% federal income tax penalty.

The ABLE National Resource Center's website, ablenrc.org, contains links to state ABLE programs and a comparison tool.

*Before investing in an ABLE plan, consider whether your state offers an ABLE plan that provides residents with favorable state tax benefits. Consult a tax professional for more information.

**Participating in an ABLE account may involve investment risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. Carefully consider a portfolio's risk, charges, and expenses before investing. Read the program's disclosure statement to learn more about the program, including investment objectives, risks, and tax implications.

Upon an account owner's death, states can file a claim for Medicaid expenses paid while the ABLE account was open. Check with an estate planning professional.

IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.